Tax Breaks Don't Spur Exports, Study Finds

By Anne SwardsonBy Anne SwardsonMarch 12, 1986

Corporate tax incentives have not increased American exports despite the contention by some business lobbyists that the country's "international competitiveness" depends on retention of those tax breaks, a liberal study group reported yesterday.

In fact, figures compiled by Citizens for Tax Justice found that of the 31 largest exporting firms for which statistics were available, those with higher tax rates increased their exports from 1981 to 1984, while those paying little or no taxes had lower exports.

Eleven profitable firms that paid no taxes from 1981 to 1984, with a negative tax rate of 3.6 percent, registered a 15 percent decline in exports over the same period, the study found.

Ten companies with a tax rate greater than 20 percent, on the other hand, increased exports by 22 percent over the same period, the study said.

"Tax loopholes are at best irrelevant to how particular companies perform in world trade," said Robert S. McIntyre, tax policy director for the group. "The evidence indicates that the no-tax companies' preoccupation with chasing after tax dodges has actually reduced their ability to compete effectively."

Of the 31 companies studied, the 14 that increased exports paid 23.1 percent of their domestic profits in taxes, while the 17 with reduced exports had an effective tax rate of 6.3 percent.

McIntyre did not contend that his figures, compiled from Fortune magazine's list of the top 50 exporting firms and from corporate annual reports, comprised a representative sample of all exporting companies. But he pointed out that the volume of exports from the companies surveyed, almost $50 billion, accounted for about 20 percent of total export volume during the period studied.

There is little disagreement that a host of factors -- including exchange rates, the financial health of nations buying U.S. exports, other countries competing in the same export markets, the level of interest rates and what products are being exported -- have contributed to the surge in the U.S. trade deficit.

But business lobbyists, especially from the manufacturing sector, have made a case to Congress that their their exports would decline further without current write-offs for investment.

Companies generally have contended that, even though other factors influence the trade situation, they would be worse off without current tax incentives.

General Electric Corp., one of the companies cited in the report, responded by citing a speech earlier this year by GE Chairman John F. Welch Jr. in which he said the decline in GE's exports -- about 9 percent over the period measured by the study -- was a result of "the artificial strength of the dollar . . . giving our international competitors an effective 30 to 50 percent subsidy." According to the report, GE's average tax rate was negative 1.0 percent.